Which theory suggests that factor resource endowments determine a nations comparative advantage?

Abstract

According to the classical theory of international trade, countries specialise in producing those goods in which they have a comparative advantage over their competitors, and then obtain their other commodity requirements by exchanging domestically produced goods for imports which they are not able to produce economically themselves. Historically the trade of the countries of the Middle East has tended to conform to this pattern, although, increasingly, government regulation of economic affairs has meant that the trade flows predicted by classical laissez-faire models have tended to be distorted. A country’s comparative advantage in the production of a particular commodity is of course determined by what is usually referred to as its ‘factor endowment’, or in other words, the local availability of resources such as labour, agricultural land, mineral resources, capital or technology. Thus, for example, Egypt which has abundant cheap labour, and a good supply of fertile irrigated land, has specialised in cotton production for which its climate is well suited, and for over a century has traded cotton exports for imports of manufactured goods.1 Similarly, for hundreds of years Iran has specialised in carpet production, with the skilled weavers of Tabriz and Isfahan using local wool from the mountains. Neighbouring Iraq has specialised in dates,while in North Yemen the main export has been coffee.

Keywords

• Saudi Arabia
• Comparative Advantage
• Middle East
• Capital Formation
• Factor Endowment

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Chapter 1

1. For a detailed account of Egypt’s emergence as a cotton exporter see Robert Owen, Cotton and the Egyptian Economy 1820–1914 (Oxford University Press, 1969).

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2. Robert Mabro, ‘Employment and Wages in Dual Agriculture’, Oxford Economic Papers, Vol. 23, No. 3 (1971) 401–17.

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3. International Labour Organisation, Rural Employment Problems in the U.A.R. (Geneva, 1969).

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4. Bent Hansen, ‘Employment and Wages in Rural Egypt’, American Economic Review, Vol. LIX (1969) 298–313.

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5. In spite of this high population growth, per capita incomes have risen however in most countries in the area. See Galal Amin, The Modernization of Poverty (E. J. Brill, Leiden, 1974), Chapter 1.

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6. In fact there is perhaps over-urbanisation. See Galal Amin, The Modernization of Poverty (E. J. Brill, Leiden, 1974), Chapter 3.

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7. Keith McLachlan, Planning and Industrialisation in Iran (Focus Research, 1975). See also earlier 1974 report on Iran by Focus Research.

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8. Rodney Wilson ‘Business Climate Remains Favourable for Foreign Investors and Contractors’, The Times Supplement on Egypt 26 March 1975. Also later article by the author in The Times 5 November 1975.

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9. Robert Stevens, The Arabs’ New Frontier: A History of the Kuwait Fund ( Temple Smith, London, 1973 ).

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10. Robert Z. Aliber, ‘Oil and the Money Crunch’, National Westminster Bank Review, February 1975;

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11. Jan Tumlir, ‘Oil Payments and Oil Debt in the World Economy’, Lloyds Bank Review (June 1974).

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12. Minos Zombanakis, ‘Arab Funds and the Markets’, The Banker (July 1974).

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13. International Monetary Fund, International Financial Statistics (December 1975).

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14. Although they will have to improve on their previous industrial performance as outlined by Julian Bharier, Economic Development in Iran 1900–1970 (Oxford University Press, 1971).

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15. As the authors of most introductory texts on development emphasise at the start. See Walter Elkan, An Introduction to Development Economics (Penguin, 1973 ).

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16. Also Matthew McQueen, The Economics of Development (Weidenfeld and Nicolson, 1973).

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Authors

1. Rodney Wilson

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© 1977 Rodney Wilson

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Wilson, R. (1977). The Factor Endowment. In: Trade and Investment in the Middle East. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-03299-0_1

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• DOI: https://doi.org/10.1007/978-1-349-03299-0_1

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